By Deborah Tarrant

Once a “nice to have” or a sideline concern, sustainability has now hit the mainstream. Environmental, social and governance issues [ESG], under the broader umbrella of sustainability, are transforming economies, with climate change front and centre. An ever-mounting number of governments and corporates globally are committing to net zero emissions targets by 2050.

Sharing the driver’s seat on this intrepid journey – along with countless big thinkers and global leaders – are finance professionals.

ClimateWorks Australia is an independent research consultancy that operates within Monash University’s Sustainable Development Institute. Chief executive officer Anna Skarbek says as economies and businesses decarbonise by adopting new technologies and switching energy sources, “finance is the enabler”.

Scientific evidence of the effects of climate change is mounting (including dire predictions in the UN’s Intergovernmental Panel on Climate Change report in early August) along with the pressing pursuit for planet-saving solutions. The need for CFOs and accountants with expertise in sustainability is growing.

As community and expert knowledge increases about the urgency of decarbonisation, “people are watching the flow of money,” says Skarbek. She predicts accountants and the finance function of organisations will be at the heart of the action as money continues to flow into sustainable activities.

Indeed, global investors’ sights are now transfixed by sustainability. The pandemic seemingly produced a purposeful, survive-and-thrive sustainability roadmap for many seeking a way out of the great uncertainty caused by COVID-19. Financial research company Morningstar reported record inflows for funds that took ESG into account in 2020.

And it’s not just climate change that’s on their minds. The previously less scrutinised social component of ESG is also in focus, as the pandemic brought fairness and inequality to the fore.

Notable hot points have been the Black Lives Matter movement, global outrage over the destruction of a 46,000-year-old Indigenous heritage site in Western Australia’s Pilbara by mining giant Rio Tinto in 2020, and high-profile sexual harassment claims that have prompted many organisations to review diversity and inclusion activities.

Meanwhile, the voices of leading economic influencers, such as former Bank of England governor Mark Carney, who is now the UN Special Envoy on Climate Action and Finance, and Larry Fink, chief executive of influential asset manager BlackRock, have grown louder on the importance for businesses to act urgently on climate change.

Ambitious business targets

Heeding the call, business operations are transforming. Processes are being reimagined. New technologies are being embedded, refined or invented, and new equipment procured.

Remuneration for executives and managers is also being tied via KPIs to sustainability targets.

Wesfarmers managing director Rob Scott CA recently outlined in Company Director magazine how the pay of the group’s divisional MDs is linked to driving change across the conglomerate. Wesfarmers has ambitious targets for its retail businesses Bunnings, Kmart and Officeworks to become carbon neutral by 2030, while with an absence of immediate solutions for its chemical division WesCEF, it’s shooting for 2050.

Like many organisations, Wesfarmers – where widespread supply chain risk drives a keen focus on “modern slavery” – has moved sustainability beyond designated teams to the wider business and significantly into finance. The company is looking at a broad spectrum of ESG concerns and recently issued sustainability-linked bonds tied to its renewable energy and Indigenous inclusion targets.

These measures are part of the surge in interest in sustainable finance. There’s a high demand for tailored financial instruments – from green and social bonds to sustainability-linked loans – designed to help corporates meet capital needs while also providing an incentive to transition towards a low-carbon and sustainable future. Global issuance of ESG-related bonds looks set to hit a record US$1 trillion this year, Bloomberg reports.

Policies may vary between jurisdictions, but that’s not stopping action. The European Union (EU) is the recognised leader in sustainable finance and regulatory disclosure. Australia, however, lags New Zealand where an emissions trading scheme (ETS) has been operating since 2008.

But the heat is on the Australian government to formally announce a net zero target at the UN Climate Change Conference (COP26), which will be held in Glasgow in early November.

Signs of change

Signs of change abound. Skarbek points to the Australian Securities and Investment Commission’s (ASIC) recent assessment of companies using the globally recognised reporting framework of the Taskforce for Climate-Related Financial Disclosures (TCFD).

Emissions need to be accurately measured, reported and assured, regardless of whether these behaviours are mandated for business in the country or region of operations, Skarbek insists.

“Where there isn’t an explicit carbon pricing regime, investors are asking about ‘shadow’ carbon pricing. They want to understand a company’s future exposure should a carbon price be introduced,” she says.

“[Investors] want to understand a company’s future exposure should a carbon price be introduced.”

It’s a point also highlighted by Matthew Lunn FCA, a PwC Australia partner and Australian ESG assurance leader. Carbon accounting in some jurisdictions is definitely driving expectations in others, he says.

Despite voluntary reporting in Australia, Lunn says the frameworks that are now central to European businesses, such as the TCFD and the use of the EU taxonomy for defining climate disclosure, “are coming our way”.

As a result, sustainability is forging new career paths for finance professionals. “Now accountants and CFOs are responsible for more than a balance sheet and a P&L [profit and loss statement]. There’s potentially a lot more focus on a lot more numbers to be accounted for and assured, and a proliferation of different sustainability frameworks against which they might report,” he says.

Picture: Matthew Lunn FCA, PWC Australia.

“Now accountants and CFOs are responsible for more than a balance sheet and a P&L. There’s potentially a lot more focus on a lot more numbers to be accounted for and assured.”

“In organisations, they are central in determining which framework to use and the metrics that best show progress in meeting its targets.”

Sustainability is the new hot skill

In the interim, a global drive to standardise ESG measurement and frameworks is underway. What’s keeping Australian and New Zealand CFOs awake at night is finding talent for fast-evolving sustainability reporting and assurance. With talent-scouting particularly onerous due to border closures, these are now hot areas for upskilling and specialisation.

Right now, there’s a search for accountants with expertise in the 15 different types of Scope 3 emissions.

“There’s big demand for people who actually understand what emissions are, how they are categorised and measured,” says Lunn, adding that it’s different for each organisation across the sectors.

Auditing sustainability numbers is a rapidly developing field. “Financial numbers are prepared in accordance with accounting standards, but for ESG there aren’t yet defined standards for what metric to represent and how to calculate it. From an audit perspective there’s a widespread growth opportunity,” says Lunn.

The social component of ESG is also now moving, with measurement in the area remaining challenging.

“For example, how do you accurately measure culture?” says Lunn.

Adding to the vibrancy of the field is the interrelated nature of ESG actions, says Lunn. For instance, a bank may decide, in line with its environmental goals, not to lend to a port that ships coal, but that may have a detrimental impact on the local community and impinge on its social objectives.

It’s not as straightforward as financial accounting. “We’re on new frontiers,” Lunn concludes. But, as he tells graduates, it’s exciting to be part of something that’s developing and changing the world for the better.

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